*The forecasted values were provided by the company.
*The company conducted a 40-for-1 share split in Mar. 2016 and a 50-for-1 share split in Apr. 2017. And it will conduct a 2 for 1 share split in Feb. 2018. (It will be reflected EPS in FY5/18)

This Bridge Report reports GameWith's financial results for the first half of the term ended in May 2018 and an outlook for the term ending in May 2018.

GameWith, Inc. ("GameWith") operates a media business, offering game guides, game reviews, community function, and video streaming. By providing articles and functions for playing games, the company attracts clients, and also provides advertisers with advertisement slots to earn revenue.
[Corporate history]
Originally started in an apartment unit in 2013, GameWith was founded during a time when the game-playing environment was moving from browsers to apps, smartphone games were becoming a sophisticated trend, and the need for game guides was growing. In June 2013, GameWith was established with the purpose of operating a video game information site under the belief that "players will be able to enjoy games more if there is a place where they can get necessary game tips and information."
In September 2013, the company's game information portal was released. Initially, it was a simple Q&A site in which users inquired mainly about game tips. In May 2014, GameWith established a full-scale system for producing walk-through articles, after which page views skyrocketed. In September 2015, the company started Game Review, and in September 2016 launched a video streaming for game guides. In March 2017, the company began offering the community function.
GameWith, Inc. was listed in the Mothers of Tokyo Stock Exchange in June 2017, four years after its incorporation.
*Source: GameWith's reference materials ("Ad Cost in Japan" by Dentsu Inc. and "Survey on the trend of the smartphone ad market in 2016" by CyberZ, Inc.)[Business Description]
GameWith acts as an intermediary between players and game companies by commercializing their needs. By providing articles and functions for gaming, the company attracts users and provides sponsors with advertisement slots to earn revenue. Both Internet and Smartphone Advertising markets currently continue to grow strongly.
*From company data (sources: "Advertising Expenses in Japan" by DENTSU & "Smartphone Advertisement Market Trends 2016" by CyberZ)Primary Services
The four main services offered by GameWith are Game Guide, which provides information to improve the users' game play; Game Review, which is a source of information for finding good games; Community, which enables game players to communicate with one another, and Video Streaming, in which exclusive and talented gamers stream their game play on YouTube. Users attracted to the game tips are led to such services as Game Review, providing opportunities to cross-sell services.
Game Guide
Through its Game Guide service, the company provides articles on game tips, predominantly for smartphone games. Through effective recruitment of players of popular games, training players as writers and methodically producing articles, GameWith developed a robust system for swiftly responding to events and producing high quality, game-related content.
A team of GameWith writers is created for each game title, where they complete games and write articles. Since there are multiple writers specialized in games producing articles, the company is able to offer high-quality tips for games. The company recruits gamers from the top 0.1%, educates and trains them after employment, developing them as writers through its in-housetraining system.
When the new game is released, writers who take charge of the game which have already peaked out will be assigned. They will show a high performance because they have had a high ability to complete games.
In May 2014, GameWith took action on the user feedback it received, and began to offer more accurate game guides. In May 2016, the company released a game tips app. By releasing the app version of the game guides that had previously been provided only on the website, users were able to utilize the contents of the company more easily. The app is built with an automatic matching function to find comrades in a game. As of the end of August 2017, the company released nine iOS apps and one Android app, and are planning new strategies based on corporate standards, including the number of users and page views.
Game Review
The Game Review service offers reviews that can motivate users to start playing different games. When information on a new game is released, the writers of GameWith publish reviews (note: for some games, video is produced in-house) Gamers can grasp the contents of new games prior to release not only by reading the reviews, but also receive notification of the release of each new game by using the prior registration function of GameWith.
In addition to the articles introducing games, Game Review provides unique ranking information and a comprehensive database of games which is excellent for quick reporting. By offering added values that are not in the app store, the company is implementing a differentiation strategy to search for games based on preferences.
Community
Provides the function to enable gamers to communicate after registering for free membership. It is aimed at increasing enthusiasm about games by connecting players who are playing the same game. The Community service leads to the vitalization of gaming media on the whole and increases its market value; in addition, Community supports game companies by tacitly encouraging gamers to play games for a longer period of time
Video Streaming
Initially, video streaming was used by game guide writers of GameWith to provide gaming tips in a clearer format. However, currently, it is used as a means to plan and disseminate attractive content to users through streaming live game-play videos.
The strength of the company is its ability to manage from discovering and cultivating webcasters to promoting them. These webcasters are also selected from the game guide writers employed by the company, or they are the creators who have exclusive management agreements with the company. Since September 2016, the company has been earning advertising revenues by inserting ads in the videos, and also selling the service in which the video performers not only promote the games, but also do sales promotion of products as an advertising commodity.
Earning revenue from online advertisements
GameWith earns revenue by selling advertisement slots for its network or tie-up advertisements utilizing the network to sponsors and advertisement agencies whilst offering content.
In network advertisement, GameWith earns revenue by selling its internet advertisement slots, as well as advertisement slots in video streaming and game guide apps through its advertisement distribution network. On the other hand, tie-up advertisement is those negotiated mutually with the game providers, and they order these advertisements for an improvement in their app games' recognition and retention rate of their users as part of their promotional activities.
In the game reviews, GameWith offers the app games introduction services for free, but the effectiveness of free services like this tends to be restrictive. Therefore, the company also offers various value-added (paying) services such as article ads (including banner ads and game introduction videos), and production, management and operation of gaming guide information. Game providers can expect an improvement in their games' recognition and retention rate of their users by using these value-added services (i.e. ordering GameWith's advertisement services).
Incidentally, the company's tie-up advertisement service was only set up in the term ending May 2017 and therefore its sales are still to be reinforced.

Financial Results for First Half of Fiscal Year Ended in May 2018

(1) Non-consolidated Business ResultsSales Up 100.3%, Operating Income Up 174.8% Year on Year
Sales increased 100.3% year on year to 1,286 million yen. The sales of network advertisement were up 90% year on year, being helped by the strong results from the effort to increase PV unit prices after setting up the advertisement operating system in January 2017, and large-scale promotions of specific titles, while the sales of tie-up advertisement grew 3.6 times year on year, meeting the strong demands from game providers.
In terms of profits, the company's gross-profit ratio was recorded 69.4%, up 5.1 points over the previous term (64.3%). Operating income rate increased 13.2 points to 48.6%, as the sales growth offset the augmentation of expenses (total operating expenses: 661 million yen, up 60% year on year) due to the increase in labor costs and rent arising from the increase in writers and engineers, the rise in server usage fees for dealing with increased traffic due to the expansion of services, the strengthening of its management department.
(2) Quarterly Results
The 2Q (Sep-Nov) saw a continued upbeat trading, and recorded the results only second to the preceding quarter, which recorded thus far the highest sales and operating income, helped by the special effects of promotion. With regard to network advertisement, the monthly average of PV unit price grew 1.92 times since the advertisement operation system was set up back in January 2017, and apart from the 1Q with the special demands mentioned above, it was again the highest on record. PV, that tend to change according to gaming events and seasonal fluctuations, also remained at a high level from the 1Q. While network advertisement is performing excellently, tie-up advertisement is increasing their sales composition ratio as the sales department's proposal-based sales are starting to pay off.
*PV Unit Price Index: an index with the monthly average PV unit price of January 2017 (when the advertisement operation system was brought in) expressed as 100.(3) Financial Situation
Total assets as of the end of the first half were 2,592 million yen, up 776 million yen from the end of the previous term. In debit side, the cash and deposits increased with the 282 million of funds raised from listing on the TSE Mothers on June 30th and securing free CF of 362 million yen during the first half (operating CF: 422 million yen; investment CF: -60 million yen), while on the credit side, net assets and income taxes payable have increased. At the end of the first half, the company's equity ratio was 83.0% (78.5% at the end of previous term).
(4) Topics
The company commenced the service to offer exclusive management agreements to YouTube creators for gaming live webcasting to become their gateway and to support their activities. Because of this, the number of channel registrants grew from 0.59 million at the end of the last term to 2.22 million at the end of the first half of the current term.

Financial Forecast for Fiscal Year Ending in May 2018

No Change in Full-year Forecast: Sales Up 30.9%, Operating Income Up 20.1% Year on Year
The progress rates for the full-year forecast are looking solid, with sales, operating income, ordinary income, and net income at 62.1%, 79.2%, 79.2%, and 84.2% respectively, but the company did not alter the outlook, saying, "The progress is looking better than the initial forecast but we are also considering more aggressive investments for growth while carefully evaluating the immediate business environment." With regard to PV, the company is cautious while carefully evaluating the immediate business environment as well as the user behaviors. With balanced judgments, the company is poised to invest in growths with app development and overseas expansions.
(2) Business Strategies from Second Half Onwards
On December 8th, 2017, the company launched an app (iOS and Android) that integrated communities, gaming guide, game reviews in one place and also commenced the operation of the Taiwanese version of "GameWith" game guide site on December 26th, 2017.
App Development
The objective of their app development is not to encourage users to go through the "flow-type" service - users search each time via search engines to come in - but to make them shift onto the "stock-type" service - users download specific apps once and keep using them rather than search each time using search engines. Until now, the company has been competing on the search engines as a stage but it is hoping to increase its market share by not relying on search engines but guiding entice users directly using own apps (achieving "initial recall" of games by app development - increasing market share).
Overseas Expansion (Taiwan)
There are 1.5 billion mobile gamers globally (Source: EEDAR "DECONSTRUCTING MOBILE & TABLET GAMING 2015") and GameWith is poised to seize on these vast demands by expanding overseas. The first step is the "GameWith" Taiwanese version: it has already begun offering the game guide site for "Monster Strike" (Mixi Inc.; traditional Chinese characters version), for which the company already has the experience of operating a game guide site in Japan. The company is planning to accumulate the necessary knowhow to expand into overseas markets, such as the methods of operation and attracting customers and costs, with even expanding into the English speaking markets in sight.
(3) Share Splitting and New Shareholder Special Benefit Plan
To increase fluidity and the number of investors, the company has carried out the share splitting - one share into two shares - as of February 1st 2018, and introduced the shareholder special benefit plan as part of the plan to incentivize the investors to hold the shares for medium- to long terms.
With Wednesday January 31st 2018 as the cut-off date, each share was split into two shares. This came into effect on Thursday February 1st 2018.
With regard to the shareholder special benefit plan, the company will present 1,000 yen-worth Quo Cards to each holder holding 100 shares (= one unit) or more listed or recorded in the shareholder list on 31st of May each year (gifts to be dispatched after the annual meeting of shareholders at the end of August each year).

Future Considerations

With the network advertisement, carefully tuned campaign by GameWith's dedicated advertisement operation team (outsourcing to in-house operations) to maximize profitability by selecting the best ads in time units is starting to pay off. Currently these are done manually but in the near future the company is looking to automating the system with the 24-hour operation in mind, and this will likely keep the company in the continued growth phase. It will be very interesting to keep an eye on the app development and overseas expansion, the core of the company's current business strategies. Tie-up advertisement is also starting to pay off due to the sales team's proposal-based sales activities, but this is a new area and it has a great potential for growth as with network advertisement. The company is apparently also discussing the participation into the E-sporting market and we have heard that they are already at the final stage of discussion deciding how to approach the market.

<Reference: Corporate Governance>

◎ Corporate Governance ReportUpdated Oct. 23, 2017Basic policy
Under the motto "Create a more enjoyable gaming experience," our company is working to establish a system which is robust and transparent, where rapid decision-making is made possible, as well as strengthening our internal control including stricter compliance and risk management, in order to develop a system of business operation to provide an optimal environment for all people and companies involved in gaming. Through these measures, we will strive to further enhance corporate governance and maximize our corporate value.
<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
Our company follows all of our corporate governance codes.
<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
[Principle 1-4 The so-called strategically held shares]
Our company may hold shares of other companies as a means to maintain or improve our transaction and cooperative relationships. The basic requirement for holding such shares is that these strategically held shares are expected to increase our corporate value, and they will be considered based on the possibility that they will maintain and strengthen medium to long-term cooperative relationship between the issuing company and our company, facilitate a transactional relationship, and create or develop business opportunities.
Regarding the voting rights arising from the strategically held shares, each resolution in question will be considered for its contents and its medium and long-term influences on increasing our corporate value, and the deciding authority as stipulated in the "Regulations of Administrative Authority" will make the decision, after comprehensively considering if the issuing company 1) possesses the objectives and businesses that are in line with our company's policy for strategically held shares, 2) discloses information of its corporate activities regularly and appropriately, and 3) possesses the business foundation that enables continuous growth.
[Principle 1-7 Transactions among parties concerned]
When the directors of our company perform a transaction that may constitute a conflict of interests, such a transaction shall be approved by the board of directors in accordance with laws and regulations as well as the rules governing the board of directors, so that such transactions are kept under appropriate observation. Additionally, should such a transaction that may constitute a conflict of interest be performed, the important facts shall be appropriately disclosed pursuant to laws and regulations.
[Principle 5-1 Policy on constructive dialogue with shareholders]
Our company operates a system that ensures continued constructive dialogue with shareholders from the mid and long-term viewpoints, regarding such matters as corporate governance, business strategies, capital policies, business results and financial condition, and service contents and its risks, in order to maintain the continuous growth of our corporate values and to build a strong relationship of trust with our shareholders.
- Dialogue with shareholders are supervised by the president, while individual interviews are held by the head of corporate planning, in consideration of purposes and effects of such meetings and the attributes of the shareholders, and the attendees for such events are carefully selected including the potential attendance by the president and the executive administrative managers, where the strategies are discussed in depth beforehand.
- Our Investor Relations (IR) staff collects necessary information from each section within the company, especially the business and management sections, and develops explanations that are easy to understand through close internal cooperation in order to enrich our dialogue with shareholders.
- Our company continues activities to deepen understanding of shareholders regarding management policies, corporate governance, strategies, and the present condition of businesses.
- For dialogues with our institutional investors, our company holds individual interviews as well as financial results briefings, held each half term. Additionally, through the page dedicated to shareholders and investors on our website, we disclose information of such events to individual investors as well as hold company information sessions for individual investors.
- When the interests and concerns of shareholders emerge through dialogue with them, they will be duly communicated to the management (heads of departments or higher) and are reflected in our business analyses and the examination of our methods of information disclosure.
- In the course of dialogue with shareholders, insider information is appropriately controlled in compliance with internal regulations.
- Our company has set aside a "silence period" in which we do not engage in dialogue concerning financial results.

Disclaimer

This report is intended solely for informative purposes, and is not intended as solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However, we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.
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